The Fed’s Dependence on the Consumer Will Backfire

Wednesday, March 1, 2017 8:32

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mises.org / C.Jay Engel / March 1, 2017

The story is that it is consumers that are going “to push the economy to grow more than 2 percent this year.” That’s Dallas Fed President Robert Kaplan’s recently expressed view. It’s the old fallacy of spending — rather than saving — our way into growth. It’s remarkable that no one talks about the fact that the economy since 2008 was built on little but cheap debt, and therefore depends on the continued flow of such debt.

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To raise interest rates in that environment, will lead to the very conditions that the Fed fears the most. Of course, Austrians would praise such a blessed blow to the artificial boom. However, since the Fed, operating through a Keynesian lens, sees no inherent instability in such an economic environment. They don’t see how much this would severely undermine the alleged stability they think they’ve achieved.